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Sri Lanka’s crisis seen as highlighting lessons from Greece

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‘In some of the key metrics, such as debt/GDP, fiscal and current account deficit, you can see a lot of similarities between the crisis in Greece and that in Sri Lanka, which also has a lot to do with the actual incidents of the crisis, including accumulating of early warning signals and the failure to see the signals, rising deficits and debt to around 10% of GDP and triple deficits in 2009, in the case of Greece, former Finance Minister of Greece, Dr. George Papaconstantinou said at a Sri Lanka Institute of Directors (SLID)-initiated webinar recently.

‘The deeper causes behind the crisis was a combination of clientelism, a dysfunctional political system and weak institutions that could not act as a counterbalance to check political decision-making, Dr. Papaconstantinou added.

A SLID press release said: ‘The Sri Lanka Institute of Directors recently held a webinar titled Sri Lanka’s Economic Crisis: Lessons from Greece, featuring Dr George Papaconstantinou, the former Finance Minister of Greece. The session drew several pertinent lessons from Greece’s own experience through its tumultuous period of unprecedented economic crisis in 2009-2018 and its road to recovery. The session was moderated by Faizal Salieh, chairman of SLID. It had a 30-minute keynote speech by Dr Papaconstantinou followed by a 30-minute Q & A discussion.

‘Dr Papaconstantinou in his keynote said; “No two crises are the same. but there are many similarities such as warning signals, incidents, and unfortunately the same long and painful recovery periods.” He spoke about the key learnings from the Greek experience, critical actions that are required from a political and economic sense, the roles of business, government, and citizens in trying to find right solutions, short term quick fixes vs long term sustainability, and gave some broad recommendations that can be considered as Sri Lanka moves forward.

‘Greece had three bail outs, by far the biggest in any country. Unsustainable debt levels, excessive public expenditure, massive tax evasion, huge credit expansion and wages outstripping productivity gains contributed to the decline in the economy’s competitiveness.

‘He said that the Greek crisis was longer than it should have been due to mistakes that were made which need to be avoided in Sri Lanka, and that it is important to focus on the logic of the IMF bailout which is to provide funds until Sri Lanka regains access to international financial markets. In order to continue getting these funds, a combination of fiscal consolidation, monetary and exchange rate policies, and reforms in product, labour, and financial markets must be implemented which can be extremely unpleasant. He pointed out that fiscal consolidation would lead to recession but would eventually restore investor confidence and enable the return of long-term investors. He stressed the importance of long-term investors over the short-term opportunity-seekers for the economy’s long-term sustainability.’

‘Dr. Papaconstantinou cautioned that the country risk immediately spilled over to the corporate sector and had stayed over a long period in Greece, and they had a hard time tapping into international markets and had to grapple with issues such as acute forex shortages, and flight of highly skilled human capital that was essential for rebuilding the economy. He said the Greek economy was still carrying the cost of lost human talent.

“A lesson that we learnt was that one should not delay taking painful decisions, which is important for politics as well, because the longer it waits the tougher it becomes.” He stressed the need to move fast on the restructuring of debt. “Delay entails costs and typically, time is not in your favour. There is also a trade-off between short and long-term transformation with IMF asking for a lot of short-term measures which makes it harder to have long-term reforms. It is important to push for long-term transformation and growth potential of the country. In the private sector, when the bubble bursts there will be many losses and very few wins,” he added. “The crisis inevitably entails political polarisation, and even good companies can go bust. That’s where the Government should step in and support them.”

‘Speaking of the role of the citizens, business, and government, he said “Crises are transformative, dramatic and tend to completely upend a society, politics and business and often go through the 5 stages of grief – denial, anger, bargaining (Sri Lanka’s current stage), depression, and acceptance. Crises consume governments. It is important to keep the political climate non-toxic helping to keep the crisis duration shorter as in Portugal and Ireland and elites must also take the pain. If they are sheltered it is going to prolong the crisis. Social partners need to be part of the solution and should have a seat at the table even with IMF discussions on what needs to be done, and often IMF also gets it wrong as their recipes are not necessarily useful for every country.”

“The pain which accompanies every crisis needs to be apportioned in a socially fair manner. Everyone will suffer but the vulnerable will suffer more. If it is seen that business and political elites were carving out a secure environment, it will backfire. The government needs to be fully accountable with maximum publicity, honesty, and openness. Greece passed a law where every government expense is published on the web, if it is not, then it is not legal. Also, a realistic fiscal path needs to be determined, if not it could lead to a vicious circle and lead to economic collapse which happened in Greece. Embrace the necessary reforms whether they are public sector, product/market reforms, opening up markets, professions or reforming SOEs, and privatisation. It is important for the government to stand firmly behind these rather than as an afterthought to fiscal consolidation. Finally, it is important to get the narrative right, and recognize the reasons how you got to this situation, and who is accountable. In Greece, we blamed the IMF, the Germans for being too tough, and blamed everyone else except for ourselves, the government and the business community for making some wrong decisions like relying too much on the government and not standing on its own feet,” he concluded.

‘In response to a question from the moderator that the usual criticism levelled against IMF was that it has a “one-size-fits-all” prescription for remedy and how it was managed in Greece, Dr George explained that the IMF is now different from the Asian crisis times, “it is a different beast, they do actively try to be more understanding of the social situation and they are open to keeping a recipe of measures that is balanced and protects the vulnerable, and they are open as long as you got the data to back it up, and arguments to exchange some measures for others if you can show them that a specific measure is detrimental. At the end of the day, they have the money and therefore the veto rights, so it’s a delicate situation and they have to be convinced of your sincerity and competence. The conversation with the IMF does not finish with the signing of the agreement.”



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People’s Bank celebrates 75 years of Independence by offering gifts to newborns

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People’s Bank celebrated Sri Lanka’s 75thNational Independence at a modest ceremony held at their Head Office which was followed by a series of island wide initiatives.People’s Bank’s ‘Birth of Freedom’ programme which commences on every Independence Day was carried out this year as well. Under this concept, People’s Bank gifts Rs.2,000/- worth of an ‘IsuruUdana’ Gift Certificate to every baby born between the 1st and 14th of February.

People’s Bank launched this programme in 2006 with the vision of instilling national pride and encouraging parents to plan for their children’s future. Parents can open an ‘Isuru Udana’ Children’s Savings Account at any People’s Bank Branch using the Gift Certificate.

Director of the Castle Street Maternity Hospital Dr. Ajith Danthanarayana, Director of De Soysa Hospital for Women in Borella Dr. Pradeep Wijesinghe, People’s Bank Senior Deputy General Manager (TB & OCS) Rohan Pathirage, Deputy General Manager (Retail Banking) Renuka Jayasinghe, Deputy General Manager (Strategic Planning, Performance Management & Research) Jayanthi Kurukulasooriya, Deputy General Manager (Risk Management) Roshini Wijerathna, Deputy General Manager (Banking Support Services) Nipunika Wijayaratne, Deputy General Manager (Channel Management) T.M.W Chandrakumara, Head of Marketing Nalaka Wijayawardana, Assistant General Manager (Retail Banking) Nalin Pathiranage, Assistant General Manager (Human Resources) Manjula Dissanayake, Colombo North Regional Manager S.L.M.A.S Samarathunga, Colombo South Regional Manager M.S Kanakka Hewage, Borella Branch Manager W.A.N Udayangani, Town Hall Branch Manager Tiral Pradeep, Deputy Director of De Soysa Hospital for Women in Borella, Dr. K.M Nihal, Administrative Officer of Castle Street Hospital for Women S.M.T.A.R. Bandara, Nursing officers along with hospital staff were also present at the event.In line with the above all People’s Bank branches across the country initiated ‘Nidahase Upatha’ activities island wide.

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Norlanka Manufacturing Trincomalee receives LEED Gold Certification

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Norlanka Manufacturing Trincomalee was recently awarded the prestigious LEED Gold Certification (Leadership in Energy and Environmental Design).Norlanka, one of Sri Lanka’s largest sustainable exporters of baby and kidswear, has an extensive ESG (Environmental/Social/Governance) strategy and understands the responsibility it has concerning the future of a sustainable apparel industry. Therefore, ethical sourcing, in particular working with responsible supply chain partners has been a critical operational necessity.

The LEED certification is a globally recognized symbol of sustainability achievement, and it is backed by an entire industry of committed organizations and individuals paving the way for market transformation. It’s awarded for projects that have earned points by adhering to prerequisites and credits that address carbon, energy, water, waste, transportation, materials, health and indoor environmental quality. Buildings consume energy and resources at an alarming rate, therefore the LEED rating system is the most widely used green building rating system, as it provides a framework for healthy, efficient, carbon and cost-saving green buildings.

LEED takes multiple areas into account with varying sub-criteria when certifying a building such as location, transportation, sustainability of the site, construction, water efficiency, energy and atmosphere, materials and resource, waste management, indoor environment quality, innovations and more.

Chief Innovation Officer of Norlanka, Buddhi Paranamana stated, “This LEED Gold certification is a testament to our constant drive to improve our sustainability efforts. This award marks yet another milestone in Norlanka’s journey towards becoming carbon neutral by 2025. Since 2010 we’ve constantly been learning how to do things in a more sustainable way. I would like to congratulate our team for obtaining this certification. It showcases dedication towards achieving sustainable excellence while achieving our goals and providing customers with high-quality products.”

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SL bondholders ready for debt restructuring talks with authorities– with conditions

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Sri Lanka’s bondholders have told the International Monetary Fund (IMF) that they are prepared to engage with Sri Lankan authorities in debt restructuring talks consistent with the parameters of the global lender’s program.The Ad Hoc Group of Sri Lanka bondholders conveyed its stance in a letter directed to IMF Managing Director Kristalina Georgieva on Friday (Feb. 03).

“The Bondholder Group through its Steering Committee stands ready to engage quickly and effectively with the Sri Lankan authorities to design and implement restructuring terms that would help Sri Lanka restore debt sustainability and allow the country to re-gain access to the international capital markets during the IMF Programme period.”

The Bondholder Group acknowledged the Sri Lankan authorities’ engagement with their official creditors towards a resolution of the current crisis and restoration of debt sustainability.

The Bondholder Group further acknowledged that such engagement has recently resulted in the Indian government delivering letters of financing assurances to the IMF, committing to support Sri Lanka and contribute to its efforts to restore debt sustainability by providing debt relief and financing consistent with the IMF Extended Fund Facility Arrangement and the IMF Programme targets indicated in the India’s letter to the global lender.

Sri Lanka Bondholder Group Letter to IMF stated:

Based on the limited information available to us at this time, including information contained in the India Letter, we understand that the IMF Programme’s debt sustainability targets are identified as (i) reducing the ratio of public debt to GDP to 95% by 2032, (ii) limiting the central government’s annual gross financing needs to GDP ratio to 13% in the period between 2027 and 2032, and central government annual foreign currency debt service at 4.5% of GDP in every year between 2027 and 2032 and (iii) closing of the external financing gap.

The Bondholder Group hereby confirms it is prepared to engage, through its Steering Committee, with the Sri Lankan authorities in restructuring negotiations consistent with the parameters of an IMF Programme and the targets specified therein (the “IMF Programme Targets”), which the Bondholder Group understands to be the targets identified in the India Letter; it being recognized that these negotiations will necessarily be further informed by the receipt of the forthcoming DSA. We would note that the finalization of an agreement will also be subject to the satisfaction of the following conditions:

The central government’s domestic debt – defined as debt governed by local law – is reorganized in a manner that both ensures debt sustainability and safeguards financial stability. Assuming that annual gross financing needs should not exceed 13% of GDP in the period between 2027 and 2032, whilst allowing for central government annual foreign currency debt service to reach 4.5% of GDP in every year between 2027 and 2032, domestic gross financing should therefore be limited at 8.5% of GDP for the period 2027-2032.

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